Potential new members (no exact date can be given due to thecurrent Eurozone crisis):

Lithuania (previous target 2010)

Poland, Latvia and Czech Republic (previous target 2012)

Hungary (previous target 2013)

Romania (2014)

Bulgaria (2015)

The Crucible of Integration

Collapse of centrally-planned system had the biggestimpact on Germany where there was immigration fromthe East

Germany proposed reunification of both Germanys–

theSoviet Union was not in a position to object

Eastern Germany came under Western Germany's wing

Living standards were lower in the East, there was outdatedinfrastructure and equipment

In 1991 the new lander accounted for 20% of Germany'slabor force but less than 7% of its GDP

There was still a strong incentive to migrate west

The East was also cheap labor threatening unions

Germany's Integration

The Bonn Government responded by giving the samebenefits and wages to the East that the West had

This helped to lower migration to West and bring up theirproductivity

These transfers of money gave Germany deficits

Germans did not want to pay higher taxes and this led tohigher interest rates since the Bundesbank did notintervene

Interest rates were hitched due to the pegged exchange ratesof the EMS–

this affected all of Europe

Unemployment in the whole continent rose

This turned into a crisis that disrupted the progress ofEurope's integration

Integration in Distress...

Denmark rejected the Maastricht Treaty in areferandum in June of 1992

This raised the possibility that a monetary union might nothappen

Speculators anticipated that the Bank of England andthe Bank of Italy would respond by cutting their interestrates and allow their currencies to depreciate (could notbe done before because of the prospect of the monetaryunion)

Speculators pounced on their currencies

This drove Italy and England out of the EMS

Their currencies depreciated by 30%

Integration in Distress...

Spain, Ireland and Portugal were also forced todevalue several times

By 1993 the crisis affected France whose currencywas one of the center currencies of the EMS

The EMS bands were finally widened from 2.25% to15%

This allowed speculators to retire to the sidelinesand for European financial markets to settle down

Governments again began pursuing the MaastrichtCriteria

Integration in Distress...

Unemployment though was still high

Corporatism was in decline and this caused highwages and non-wage costs

Europe needed to cut hiring and firing costs

Within all of this the Maastricht Criteria began tomean unemployment for a lot of Europeancountries

The Collapse of Central Planning

Centrally planned economies broke down completely atthe end of the 1980s

Eastern Europe just could not keep up with the newtechnology and production of the West

In order to keep going Eastern Europe had borrowed alot of money from the West and the US in the 1970s(about $70 billion by the end of the 1970s)

This finally led to a debt crisis in 1981-82

To pay of its debts and keep its economies going, theEastern European countries began to let marketprinciples creep in

In the end economic freedom and political repressionproved incompatible–

Central planning collapsed

Difficulties of Transition

Eastern Europe had a way difficult transition to themarket

Between 1990-1992 output and employmentplummetted

Difficulties of Transition

Difficulties of Transition

These countries needed to reallocate resources fromthe production of heavy machinery to consumergoods–

they needed to go from manufacturing toservices

Obviously this would bring down output

Western Europe had the same challenge after WWII

The difference was the Marshall Plan

There was no Marshall Plan for Eastern Europe

Liberalization needed to take place to give managersincentive to make profits and avoid losses

Difficulties of Transition

Difficulties of Transition

Radical transition happened

The front runners in the transition were Hungary,Poland and Slovenia

Europe in the 21st

Century

●In economic sense Europe in 1948 and Europetoday look very different

Links between Europe ofYesterday and Today...

1)Shift to intensive growth

2)Governments increased spending and hiring tokeeplabor

happy now leading to massiveunemployment and higher taxes

3)Regional integration

4)Major financial crisis

Based on Benjamin Cohen’s article “MonetaryGovernance in a World of Regional Currencies”

Deterritorialization of Money

Circulation of national currencies no longercoincides with territorial boundaries of nation-states

Dollar and Euro used widely outside their origincompeting directly with local currency for bothtransactions and investment purposes

Called currency substitution (effect of globalization)

Before there was a monopoly of currency now thereis an oligopoly

Another alternative has been to replace nationalcurrency with a regional money

Currency Regionalization

Currency Regionalization occurs when two or morestates formally share a single money

1.Currency Unification: Countries merge their separatecurrencies into a new joint money (ex: EU and theEuro)–

ALLIANCE

2.Dollarization: Any single country can unilaterally or byagreement replace its own currency with an alreadyexisting other currency (ex: Monaco, Panama, Ecuador,El Salvador)-

FOLLOWERSHIP

Darwinian Struggle of Currencies

The number of currencies in the world is declining

Although not all national currencies will dissapeardue to national pride

1.Currency Unification: Monetary Sovereignty is pooled(ex. ECB)

2.Dollarization: Monetary Sovereignty is surrendered(ex. Countries following the US $)